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Enron Mail |
---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 01/26/2001
04:33 PM --------------------------- Kristin Walsh 01/25/2001 11:23 AM To: John J Lavorato/Corp/Enron cc: Jeffrey A Shankman/HOU/ECT@ECT, Gary Hickerson/HOU/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Vince J Kaminski/HOU/ECT@ECT, James D Steffes/NA/Enron@Enron, Michelle D Cisneros/HOU/ECT@ECT, Jeff Kinneman/HOU/ECT@ECT, John Greene/LON/ECT@ECT, Jaime Gualy/NA/Enron@Enron, Phillip K Allen/HOU/ECT@ECT, Mike Grigsby/HOU/ECT@ECT, Scott Tholan/Corp/Enron@Enron, Robert Johnston/HOU/ECT@ECT Subject: California Update 1/25/01 California Timeline: February 2nd: The state legislature has to pass the enabling laws to let the state pay for the electricity from auction before the current emergency money runs out on February 2. Republican leaders have vowed to block any additional emergency funds. The California courts gave Edison a two-week grace period (until February 2) on demands by the California Power Exchange that Edison forfeit $215 million in long-term low cost power contracts to the CPX for repayment of its debt. Governor Davis told the Court that he may absorb that contract in favor of taxpayers using his emergency "taking" powers. February 7th: President Bush, who had to intervene personally against his energy secretary to extend the Energy Department order mandating electricity sales to California by power generators, made it abundantly clear to all sides that the two week deadline was hard and would not be extended. February 13th: Edison worked out a three-week grace period -- through February 13 -- with all of its 32 banks and QFS to prevent from asking for accelerated repayment during that period, but if the state has not figured out a way to bridge that debt by then, this deadline could be a real trigger for bankruptcy. Legislation As mentioned in Tuesday's update, legislators are close to a long-term power buying deal with the so-called "green" producers (wind, solar, hydro, cows) of energy, accounting for 30% of California's total energy production. This would allow the Department of Water Resources to buy power from them at 8 cents per kilowatt hour. Bill AB1X--the key piece of legislation for setting long-term power contracts--is still being mulled over in the Senate, but is expected to pass this week. The keys issues is still the price, which will probably be revised in accordance to the results of the auction. Other legislation has been introduced, including three bills by Boxer that would increase federal support and impose "windfall profits tax" for wholesalers that sell power at "unfair and unreasonable" rates. The hydro legislation is still being bantered about, however with going opposition from both Democrats and Republicans. Bail out scenarios A new scenario is a market-oriented solution that would give the state of California "warrants" on the PG&E and Edison stock in return for lending them the money to get out of this current mess (still the problem of financing the $6B vs. $12B). As the stock prices recovered, the state could cash in the warrants and rebate to electricity users some of the emergency surcharge needed to pay back the debt. This is exactly the plan used to bail out Chrysler in the late 1970s and it worked wonders for taxpayers then. This senario would also provide Davis with some political cover, as the idea of rebates are far more appealing than price increases. Lots of details remain to be worked out, but even the consumer activist groups threatening to create propositions on fall ballots appeared to like this deal. Bankruptcy Socal is close to an agreement with 32 bank creditors and QFs to allow a forbearance on debt payments through February 13th. However, it is not expected that the bondholders would agree to this type of deal. The bondholders could try to force the utilities into involuntary bankruptcy, but would probably be unsuccessful. As long as Socal continues working with their creditors and show "good faith" any bankruptcy at this time would have to be voluntary. As this date (Feb. 13th) fast approaches, the state will have to take quick action and draft and approve legislation between the governor, the generators and the utilities to prevent Socal and PG&E from bankruptcy. As part of the forbearance agreement, Edison has contracted with around 400 QFs and negotiations have been directed toward separating the rate schedules of generation facilities fuelled between renewables and gas fired generation. Socal is attempting to shift gas fired QFs to longer term schedules in light of the recent higher gas prices. Auction After a nervous night when only one bid had come to the state's Internet site by midnight on Tuesday, California officials were happy to announce that they had almost 40 bids at an average of 6.9 cents per kilowatt-hour, below the 7.4 cent real cap state officials had set internally as the threshold between doable and impossible. This was well above the 5.5 cent ceiling the governor had publicly stated as the preferred level. Davis will now turn the negotiating process over to David Freeman, who heads the Los Angeles electric agency and is generally considered the dean of public-private utilities in the west. One thing to note, the State of California has no intention of any credit guarantees for the bids with the Department of Water Resources. Several California legislators have made it very clear that they do not want the state to be ultimately responsible for these power purchases.
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